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Bringing DC Plan Participant Personas Into Focus

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Bringing DC Plan Participant Personas Into Focus by Richard Davies, AllianceBernstein

Investment knowledge and engagement levels are declining among many defined contribution (DC) plan participants. But more targeted outreach may help connect different “investor personas” to the guidance and confidence they need.

Automatic Enrollment Is a Start…

As DC plans grow and defined benefit plans are frozen or eliminated, many workers are finding it overwhelming to save for retirement. Investment education and communications help some participants, but rarely the ones who need it most.

One way to help us understand participants—and help them save for retirement more effectively—may be to group them based on their common financial attitudes and interests. When we do that, we find a striking connection between high engagement and higher deferral rates, higher confidence and better retirement savings.

In our past DC plan participant surveys, the results painted a picture of two basic types of participants: those who actively invest and save, and “accidental” participants, who only invest because they’re in a DC plan. These two categories were a helpful starting point for confirming the value of automatic enrollment and automatic escalation in conjunction with a qualified default investment alternative (QDIA), such as a target-date fund.

…but Boosting Knowledge, Engagement and Confidence Needs Targeted Outreach

But participant confidence has remained chronically low through the years. And even though more DC plans adopted automatic enrollment, far fewer of them also included automatic escalation of contribution rates. That disparity can lead to worrisome complications from inertia. Without automatic escalation, the attitude of “I’ll think about that tomorrow” often means that contribution rates never rise. Retirement assets—and confidence—suffer.

So we probed deeper to see if more refined groupings of participants based on financial attitudes and interests might help us understand them better—and help them save for retirement more effectively.

Who’s Who Among Investors

Our latest survey results find a striking connection between high engagement and positive results including higher deferral rates, more confidence and better retirement savings. We’ve identified three distinct investor personas:

  • Capable, confident investors feel knowledgeable about investing and do well on our simple financial literacy test.
  • Eager, young, unaware participants have high enthusiasm and confidence but very low scores on our investing quiz.
  • Conservative, cautious savers have low confidence and low investing acumen, but they’re diligent savers and actually know more than they may realize.

Engaged with Retirement Planning-Not Just “Connected”

One way to gauge high engagement might be participation in plan seminars or education sessions, along with how frequently participants check or make changes to their accounts. “Eagers” would top that list.

But if high engagement equates to better retirement-savings results, “Capables” take the lead. And while “Conservatives” are responsibly focused on the goal of retirement income, they’re the least engaged by any criteria. They’re cautious, lack confidence and tend to feel they don’t have the time for investment issues. Each of these personas has distinct attitudes, perspectives and levels of knowledge connected to retirement saving. So, retirement issues and topics that resonate will differ for each group.

We believe that if DC plans target their communications to each participant group, it may boost worker engagement with respect to preparing more responsibly and confidently for retirement.

What’s Your Investor Persona?

Find out which type of investor you are by taking our short Persona Quiz. In our upcoming blogs, we’ll take a closer look at each category.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

“Target date” in a fund’s name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested—including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.

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